Betting On BoT

Worsening NHAI finances are forcing the government to go back to the build-operate-transfer model for road projects

- Ashutosh Kumar

On February 10, the National Highways Authority of India’s (NHAI’s) project team eagerly awaited opening of bids for two projects — six-laning of the 67.75-kilometer PanagarhPalsit and 63.8-kilometre Palsit-Dankuni stretches — in West Bengal. The excitement vanished soon after, because instead of bids, all they got were bid-related queries from developers. NHAI extended the bid submission deadline by two weeks. The story was no different and the deadline was postponed yet again.

However, when bids were opened yet again in early March, it was a jackpot for both NHAI and the Ministry of Road Transport and Highways (MORTH). Not only were there bids, but private highway developers also did not demand viability gap funding (VGF is a capital grant given by the government to a developer to bridge the viability gap in a highway project). Instead, developers were ready to pay a premium to the government for the projects. Palsit-Dankuni, requiring an investment of ₹2,193 crore, was awarded to IRB Infrastructure in end-March and Adani Enterprises bagged the ₹ 2,021-crore Palsit-Panagarh project in the first week of April.

A top official in MORTH told Business Today, “Adani Enterprises offered an upfront premium of 11.5 percent of the capital cost for Palsit-Panagarh, while IRB offered 10.8 percent for Palsit-Dankuni to NHAI.” This means NHAI will get an upfront premium of about ₹469.25 crore from the two projects. Premium or negative VGF is offered to the authority when the bidder finds that the project can fetch a positive return on investment even with an upfront payment to the government.